Q1 2022 Sunnova Energy International Inc Earnings Call

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All right.

Good morning, and welcome to Synovus first quarter and full year 2022 earnings Conference call. Today's call is being recorded and we have allocated an hour for prepared remarks and questions and answers at this time I would like to turn the conference over to Rodney Mcmahan.

Vice President Investor Relations at <unk>.

Please go ahead.

Thank you operator before we begin please note during today's call. We will make forward looking statements that are subject to various risks and uncertainties that are described in our slide presentation earnings press release, and our 2021 Form 10-K , please see those documents for additional inferred.

Regarding those factors that may affect these forward looking statements also we will reference certain non-GAAP measures. During today's call. Please refer to the appendix of our presentation as well as the earnings press release for the appropriate GAAP to non-GAAP reconciliations and cautionary disclosures on the call today are John Berger, <unk>, Chairman and chief.

Officer, and Robert Lane, Executive Vice President and Chief Financial Officer, I will now turn the call over to John .

Good morning, and thank you for joining us.

Despite persistent macroeconomic headwinds, we made excellent progress against our financial goals for the year by posting strong first quarter results.

A summary of which can be found on slide three.

On our previous earnings call, we noted that we expected to capture approximately 12%.

Of our full year 2022, adjusted EBITDA combined with the principal and interest we collect from solar loans in the first quarter I am happy to report we exceeded that target as actual financial results were ahead of that goal.

While our expenses have increased in total they have been in line with our expectations and are necessary at this stage in our evolution to take full advantage of the incredible array of profitable growth opportunities that we increasingly find in front of us.

Many of these growth opportunities are not baked in to the triple double Triple plan.

Slide four summarizes the growth in snowbird customers battery penetration and dealer network.

In the first quarter of 2022, we added approximately 15300 customers an increase of 74% compared to the first quarter of last year.

As in prior years, we expect our customer additions to escalate throughout the calendar year, and we still expect to meet our full year 2022 customer additions guidance of 85.

89000.

In addition to the strong demand for our solar services. We are also experiencing accelerating demand for energy services beyond solar.

This includes increased demand for energy services, such as batteries electric vehicle charging generators and load managers and includes sales to both new and existing customers.

We are also seeing a surprising surge in demand from our customers to up power or increase their solar generation capacity with us.

It is the rise in these types of ancillary services.

It is positioning us to realize the full option value of its customers.

While this activity will not increase our unique customer count it will increase our services per customer and in turn our net contracted customer value or in CCD on a per customer basis.

Moving us closer to our target of 18000 to $20000 and in GCB per customer by the end of 2025.

As of March 31, 2022 are in CCD per customer was nearly $10800.

To properly account for this change in customer appetite.

And to ensure we have an accurate and honest customer count we recently deployed new software to analyze our customer data.

This analysis resulted in a reduction in our total customer count of fewer than 3000 customers from what we reported as of December 31 2021.

This adjustment was driven by a tightening of our customer definition to ensure only homeowners with whom we have an ongoing economic relationship are counted as customers and are counted only one regardless of the number of services, we provide to them.

This reduction was not specific to any one period, but rather was blended across the decades <unk> has been in business and most importantly did not result in any loss, an NCD or require any modifications to previously issued guidance for 2022 or 2023.

Additionally, and selling these new stringent customer definitions will allow us to more accurately track on a per customer basis, the value being created through up powering that typically coincide with the addition of one or more new energy services.

It was these previously up powered customers that drove this customer count adjustment.

Management is focused on increasing cash flow per share by driving up the value on a per customer basis as well as growing its overall customer base.

We understand that there is unfortunately, little consistency and non-GAAP metrics in the residential solar industry.

Since <unk> gone public we continued to try to increase transparency and disclosure across the industry.

As a result, we know that our definition of a customer is more conservative than that of some of our peers, but our customer definition gives management and stockholders and accurate way of determining value creation with.

We strongly encourage investors to make sure all residential energy service providers use the same or a similar customer definition.

Our battery attachment rate on origination for the first quarter of 2022 was 19%.

This drop in our battery attachment rate was unexpected.

But with a timing issue as over the last 30 days, our battery attachment rate on origination has been 29%.

The first quarter timing issue was driven by a surge in sales from pseudo their new homes in the northeast region and a delay in our underwriting processing caused by the huge sales volumes in March.

Much more importantly, as our battery supply improved as planned.

Our battery penetration rate continued to grow and reached 12, 5% as of March 31 2022.

This is inclusive of over 1900 battery retrofits, we've installed life to date.

Our growth continues to be driven by our rapidly expanding dealer network.

Which as of March 31, 2022 stood at 915 dealers sub dealers and new homes installers we.

We expect to eclipse our year end 2022 target of 1000 dealers in the coming months.

Finally on slide four we have updated our information on customer contract life expected cash inflows as of March 31 2022.

Weighted average contract life remaining on our customer contracts equaled 22, three years and expected cash inflows over the next 12 months has increased to $403 million.

Earlier in the month, we published our second annual ESG report detailing the steps we've taken over the last 12 months to enhance our ESG strategy and reporting.

Our new report titled charging ahead.

Describe the impact of the growth we have seen this year and how we are integrating ESG best practices into our core business to drive positive outcomes for our business and society.

Building off our first report last year.

Our next step was to establish a more formal forward looking strategy.

To start this process, we conducted a materiality assessment to identify the ESG topics that were most important to our business and to our stakeholders.

We engaged our employees investors community partners vendors and other groups to assess ESG related topics from this assessment, we identified nine priority ESG topics for our business as well as others that we consider material <unk>.

The results of this assessment can be found in our new report.

With our priority topics define we engaged leaders from across our organization to ensure a strong oversight of these topics and to develop multi year goal to drive progress.

These goals also complement our triple double triple growth strategy, whereby our planned growth in our customer base will allow us to offset 52 million metric tons of cotwo by year end 2023.

Finally, we also made progress in enhancing our ESG data and aligning it with leading reporting frameworks in 2021, we aligned our reporting with the task force on climate related financial disclosures or Tc FD reporting guidelines.

This was an important step in demonstrating our commitment to climate action as a leading energy company to.

To continue our alignment with Tcf D recommendations our goal is to complete our scope III inventory for all material categories and to set formal climate targets by year end 2023.

We will also be working to conduct climate scenario analysis to better assess climate risks and opportunities for our business.

We look forward to sharing these results in future reports our team is pleased with the progress we have made to date and look forward to continuing to integrate ESG into everything we do I.

I encourage you to read our new report, which can be found on the ESG section of our Investor Relations website, and we welcome any questions or engagement on our current strategy.

I will now hand, the call over to Rob.

Thank you John Slide eight summarizes our recent financing activity and liquidity position.

<unk> 2022 financing transactions completed to date include a $150 million in tax equity funds as well as a well timed $298 million securitization closed in late February with a blended coupon of three 1%.

Our total liquidity as of March 31, 2022 with $703 million.

Down from $831 million as of December 31, 2021, but up from $276 million as of March 31 2021.

As planned utilization of liquidity was driven primarily by the seasonality of cash flows and the expected increased requirement for working capital due to growth.

Included in these numbers, our both our restricted and unrestricted cash as well as the available collateralized liquidity, we could draw upon from our tax equity and warehouse credit facilities.

Given the available unencumbered assets as of March 31, 2022, this available collateralized liquidity equaled $378 million.

Beyond that subject to available collateral, we had $423 million of additional capacity in our warehouses and open tax equity funds.

That represents over $1 1 billion liquidity available exclusive of any additional tax equity funds securitization closures or warehouse expansion later this year.

On slide nine you will see our fully burdened unlevered return on new origination was nine 2% as of March 31, 2022 based on a trailing 12 months.

Our returns increase from last quarter, so too did our cost of debt, resulting in an anticipated reduction in our implied spread to 6.0% as.

As we have discussed before we model a long term average for implied spread is a 500 basis point range to estimate our guidance targets.

As we mentioned on our last earnings call, we and our dealers have been and will continue to increase pricing to offset the increased cost of capital.

Taken together these price increases the use of our industry, our increasing operating leverage and our continued growth and additional energy services will keep margins wider in the near term and position the company to push our implied spread back towards a 600 basis point range. This year.

As to the progress of these price increases you could see our first quarter fully burdened unlevered returns increase from the prior quarter and we expect further improvement in Q2.

Slide 10 contains both our gross contracted customer value or GCB and then PCB.

In just three years time in PCB went from $968 million as of March 31, 2019 to $2 2 billion or $19 67 per share as of March 31 2022.

As we discussed in the Q&A last quarter, regardless of what the proper discount rate may be in CTV is still a punitive way to view some <unk>.

Blowdown value and gives us zero value for a platform customer option value or growth.

I remember <unk> only includes locked in contractual cash flows and this excludes any value for growth renewals upsells up powering state or national incentive appreciation or other upside.

Another way to view NCD and why we continue to believe a 4% discount rate is justified is to look at the undiscovered cash flows that is that the nominal cash inflows generated by the contracted energy services, we provide against all debt principal interest expense tax equity distributions estimated service cost.

And even an estimate for defaults based on current actuals.

This full residual cash flow view pencils out to approximately $2 8 billion.

As of March 31, 2022, which is approximately a 25% premium over our $2 2 billion in <unk> estimate.

While investors are understandably concerned about rising interest rates, we encourage you to keep three things in mind first the interest expense of our existing debt is locked in and we do not have any scheduled maturities on our corporate debt until 2026 second we have managed and we will continue to manage our fully burdened unlevered.

Turns with a view towards offsetting increased interest rates.

Third our ability to increase Unlevered and Levered returns as high driven by the increase in utility rates, which is our primary competition.

But no matter, what discount rate when users and their valuation.

We will remain so Nova has retained more value originates assets more profitably and is accelerating the acquisition of long term cash flows more quickly than any other company in the industry.

As such we can profitably invest to further increase growth or returning capital to shareholders.

We maximize shareholder value through balancing customer growth with healthy margins, increasing services sold per customer maximizing the amount of power sold to customers and minimizing losses of contractual cash flows from customer defaults.

So nobody has a technology enabled service business or wireless power company focus of providing customers a better energy service at a better price, giving them every reason to pay us for that essential service.

Currently over 10% of our customer base is paying less than half than they would to their monopoly utility for the energy they use to power their homes by being a sudden over customer due to significant increases in their utility rates, we expect that percentage could reach as high as 50% of our customer base as early as next year.

As utilities continue to ask for massive rate increases.

This together with our industry, leading customer service as a resulted in default and delinquency rates that are the lowest among our peers in an industry that is already the lowest of any major consumer asset class.

Beginning on slide 12 through Slide 14, you will find our guidance. It includes our detailed 2022 guidance liquidity forecast and our major metric plan. The triple double Triple plan. There are no changes to these estimates as we are keeping our targets unchanged from where they were on our last earnings call.

As of March 31, 2022, approximately 90% and 70% of the midpoint of our 2022 and 2023 targeted revenue and principal and interest we expect to collect on solar loans was locked into existing customers as of that same day, respectively.

This visibility is what gives us comfort in reaffirming our guidance today.

I will now turn the call back over to John .

Thanks, Rob.

<unk> consumer energy demands.

Global security issues and climate change are creating an urgency to transform the global energy industry.

To aid in this critical evolution, we are embracing an equitable practical and balanced energy future by providing homeowners the affordable reliable and sustainable energy they need.

Two insurers and other is the energy service provider homeowners choose to power their energy independence, we will continue to distinguish ourselves by focusing on what differentiates us from the competition.

A combination of service software and aggregation.

At <unk>, we strive to provide our customers with the superior energy service.

One that is more reliable and more affordable than the competition, including the centralized utilities.

Enabling our ability to provide this best in class service is our substantial investment in software for dealers customers and for aggregation.

Some of these software investments automate functions and displace the need for additional hires and increase the productivity of employees and dealers to serve our rapidly expanding customer base.

Providing the level of service required for this industry is a significant technological logistical and operational undertaking and one that can only be managed by utilizing our next generation software platform.

Our software platform together with our logistics capabilities.

Why chain management billing and collections team and efficient customer operations. All performed in house by <unk> employees provides us with tremendous operating leverage and a huge advantage over our peers.

It is this combination of software and service that enables aggregation.

We obtained an increasing amount of scale, we can better utilize this combination to enable certain aggregation capabilities, which creates additional value for both our customers and sort of the <unk>.

Currently we have multiple grid service programs in place with an estimated contracted revenue of $79 billion over the next 20 years with even more programs in the pipeline to expand that amount.

Bringing these competitive moats together fulfills our expansive customer centric vision for the future.

With this Nova adaptive home we.

We can provide an energy service offering to integrate solar power battery storage secondary generation roofing electric vehicle charging energy and control management technologies emission credit management and more to give customers unparalleled energy capabilities and reliability for their homes.

We see this as another adaptive home as the core vision that fulfills the concept of no net metering needed and drives our growth in both absolute terms and on a per customer basis. After.

After almost a decade of building out our service capabilities, we are well positioned to take advantage of the opportunities ahead of us as we help build the home of the future for our customers through continued execution and by making this adaptive home a reality.

With that operator, please open the line for questions.

Thank you.

Ladies and gentlemen, if you would like to ask a question. Please to announce hesitate to press star followed by the number one on your telephone keypad now.

Keith you change your mind. Please press star followed by the number too.

So when preparing to ask a question. Please make sure phone is on mute.

Our first question comes from Philip Shen from Roth capital.

Your line is open please ask your question.

Everyone. Thanks for taking my questions.

In terms of the anti circumvention case I was wondering if you might be able to talk us through the impacts that you guys might be seeing on the business.

Our work suggests.

Z module pricing.

Has increased 10% to 25% versus pre anti circumvention levels.

So just a couple of months or a month.

Pricing has gone up a lot.

What kind of impact are you guys seeing what kind of module availability.

Do you think you have for Q2, three and four it sounds like a number of players have exited.

We're showing are holding off in terms of chipping in and that includes I think a large Korean company. So just curious if you can share the impact thanks.

Phil Thanks.

John .

I am not going to go through.

All of that has gone through in the prior calls with the Nextera and Enphase call I think both Ceos to did a good job of explaining.

But our view is of the case.

I would add to that there's been some investigative reporting that's been out in the media over the last week or so I think it points to the fact that this is a.

Let's call it something thats.

Somewhat fraudulent in terms of the case itself and so I do think it's going to get resolved.

In a way that makes sense for the country as well as the other Ceos did so let's get to us.

We had a view going into the year first of all that there would be.

Some award in Europe , there would be increased oil and gas prices globally and hydrocarbon coal.

As well.

And so we were very bullish on demand that turns out to be accurate and we started stockpiling of equipment along with our dealers. We now have over $1 1 billion in firm contracts that you don't see in the balance sheet, we are using our balance sheet and our cash flows with our partners equivalent partners to secure batteries.

Inverters panels.

In large quantities and we encouraged our dealer to do that months ago and so.

As they did so so we feel very very comfortable moving into 2023 on the equipment side of things and we will continue to be aggressive in terms of securing that equipment.

I would add that this is an insurance policy for our dealers. So these are these are equipment that we've secured to make sure that if anything falls apart.

Our contracts in there what they have in inventory, we have some equipment inventory as well as you can see on our balance sheet that we'd be there for them and I don't think anybody else in the industry does does that so first.

First and foremost we're in great shape on the equipment side feel very comfortable.

That on the battery side of things we ended exactly where we thought we were at a good pace right now with the <unk>.

Battery deliveries.

Some weeks are better than others, but we're in a pretty good shape on the battery front just like we thought we would be and so we look to be.

In great shape across on the equipment side now.

As I think.

Badri mentioned the A&P as CEO .

Things can change certainly we are watching for that but right now we feel very very comfortable particularly over the next few months.

Certainly as I said, securing all the equipment looking into 2023, we feel like we're in great shape on the pricing side of things, we haven't seen a big price increase check that we.

We have not seen that.

Maybe do I anticipate some of the pricing as we move forward in the year.

Could it move up just based on demand and we will talk about this with the utilities.

Massively increasing retail rates across the country demand in our sector is going to go and has gone way up yes, I think that absolutely could happen, but again, we haven't seen that.

On a percentage 10, 25% of yet, but it is possible to see it but also think I'm completely confident that we'll be able to raise rates as an industry to because the utilities are raising rates so much.

Two to more than offset that so I feel I feel very comfortable with where we are as an industry and I feel extremely comfortable where we are as a company.

Great. Thanks, Sean.

That leads me into my next question around right.

Raising pricing for customers in the space you have there you talked about that on the last call can you talk us through what you're what you've done thus far how much of the increased pricing to customers. What's been the average increase what percentage of your markets that you serve have increased pricing and how much more room do you think you can based on your prepared remarks.

It seems like.

Maybe half of your customer base could be paying half of the.

Incumbent utility rate come 2023, so it seems like there is.

A fair amount of space to not only.

<unk> raised pricing, but with that despite rising costs.

We maintain a very healthy spreads.

Yeah, Phil So I'll address that last part first in terms of the customer base and what portion is paying less than half of what they would pay the utility that is that would go more towards our are locked in customer base right. So those customers that have signed up could have been a few months ago could have been a few years ago.

But we've locked that debt and as we've been very clear about and so thats locked in.

Fred if you will that keeps increasing.

Why does it keep increasing because customers are more and more inclined economically to pay us right. So the default delinquency rate. It was already a very low for our industry. It's keeps going lower for at least we can speak to ourselves. We think a couple of our peers on the service providing side, we're seeing some of that same phenomenon, but we're really seeing.

The drop in the default rate and Thats real cash when you don't lose entire contracts of value not just cost of the contract that we paid but value.

That's cash to the equity rate. So we're making a point there that says hey look our customers are getting a better better deal, which means that our shareholders will get paid and therefore get a better a better deal on <unk>.

Pricing on a forward basis, Okay. So Ford basis, where I think your main question was.

We have increased price across the board.

We have some other opportunities to increase price, we will continue to do that.

As we move forward here in the next few weeks and months.

And I'll give you a little bit of numbers here.

We are aiming as the opening of <unk>.

<unk> said in the opening remarks to that 600 basis points spread.

We can obviously look at some of the previous ABS. The recent one including Sunrun recently, and then good lease and we can see that we got a little bit of increase in the number returned to do I can tell you that's well on its way that.

At nine 2%.

Reported out was a snap as of March 31, we made a comment that Q2 is going to continue to increase it already has and so you can see a trajectory there are increasingly unlevered return.

How much room do we have.

If you look at it there was about it for every 100 bps of Unlevered return.

This is equivalent to about 175.

Give or take per kilowatt hour this varies on region. It varies.

Kilowatt right from the utility is in that particular region, whether it's really high like 28 or it could be a rather low one like 12 since moving up but that's a rough rule of thumb.

We have seen across just so far and there's going to be a lot more we know it's baked in to in terms of the utilities asking their respective puc's where rate increases, but we've seen an estimated across our base about three 5% to <unk> kilowatt hour increase already.

You look at that we have more than enough room to increase.

To 200 basis points, if we needed to do that I would say obviously the starting point was the Q4 number of kind of call. It the high eights Unlevered return and so we have more than ample room to continue to increase to get that spread back where we need. It. So is the cost of capital continues to increase which it does look like the spreads kind of peaked here a little bit with that good leap deal I think the.

Our next transaction, we did a little bit inside that it was better we expect the market to the heel as the solar ABS market and the commercial banking market really through a lot of the solar paper out with the in terms of the baby with the Bath water with the other consumer asset classes.

Mortgages autos unsecured et cetera, and so.

As the performance of the paper that data comes to investors.

Realizing that this is a very high quality paper, even as the country.

Moves into.

A recessionary stance people are paying us and I'm going to go back to the point, where as utility rates go up you got to pay the power Bill right at the house and so this is a bunch better deal and it's actually economically accretive to folks so as times get tougher.

They have a willingness to pay and that spread in the ABS market will come down accordingly, So we feel we feel very comfortable there is ample room to raise continue to raise rates we have been doing so.

We'll probably leading the industry on doing that but we're very focused on maintaining our profitability.

Great I appreciate the color thanks, Sean.

Thank you.

Our next question comes from Brian Lee from Goldman Sachs.

Ian Your line is open you may ask your question.

Hey, guys. Good morning, Thanks for taking the questions John .

John just maybe staying on the pricing.

Topic for just a second could you sort of remind us what what what the pricing strategy is I guess in terms of timing is it dynamic where you're basically going into each market.

On a real time basis and letting your.

So the dealers work.

Within a.

And ever evolving slash, increasing pricing paradigm or is it more systematically youre going in every few months in and just raising the bar just kind of level set us as to how named dynamic the pricing strategy and how it works is and then how quickly does it flow through if you're raising prices by.

Penny Penny and half across the board.

In April does that show up within a quarter or kind of how quickly does it flow through.

Yes, we have so many different contract types that we're always launching out.

New regions and new services and indeed, one of the main points for this call is just how many new services, we've launched out of how many new services, we're launching out.

In the next few weeks and months its quite substantial so.

The answer to your question, Brian is going to be that we're constantly looking at pricing every single day, we have the entire pricing team just to make sure that what we're offering out there makes sense for the customer makes sense for our dealer makes sense for us.

So.

Where I think you really wanted to go as is like okay. So these types of main increases in price in response to the utility rates moving up.

And then response to the cost of capital moving up what does that effort look like an across the board and that is a big lift and we don't do it lightly.

And we don't do it.

And very often but I think that we can all agree that the cost of capital has moved up pretty significantly over the last three or four months. That's a fact and we're responding to that fact, and we said we could look at the utility rates and they've gone way up is that just.

Gave in my answer to Phil's question.

And by the way Youre, a penny penny and a half.

Double that.

And we spend time first going into if not more and we spend time going into our dealers and saying look the consumer can pay more and still have a great deal. So we need to push this up it's.

Nobody's fault.

Is pushing up rates as we all know in response to pretty significant inflation and so it is what it is this money is not necessarily going to Sonoma. It's offsetting the increased cost of capital plus other increased cost of equipment et cetera.

And.

We work together.

It's obviously not nothing that we all want to really do but at the end of the day, we worked together and it's the same as the equipment manufacturing companies are out having to raise price.

Freight cost in cost of different materials going up and different pre.

Product and assembly of Labor and Assembly labor and so forth. So it's the same dynamic that we do.

Cross the board and we do it by dealer and we work together with that dealer, saying Hey.

There is an ability to raise price on the consumer and we need to do so because the costs have gone up across four for us and for the dealer and for the equipment manufacturer.

Yeah Fair enough makes a lot of sense and then.

Earlier in the call I think Rob mentioned the.

Sure.

The 3% plus blended.

Right you saw on the ABS. The securitization that you did in February I think you guys had mentioned a couple of times already Sunrun did one recently I think the yield was close to five and spread was over 200 bps versus kind of the lower 100, Bips, we've seen over the past.

Six to nine months, so I guess a couple of questions. In here is that attractive to you as you think about.

What you just did in February and then moving.

<unk> executed as Asian over the course of the year, just kind of where were.

The latest ones have been pricing or are you looking at other forms of paper, where you think you might be able to get better terms just kind of maybe.

Bigger picture view on.

How youre thinking about financing and then maybe the timing of what's your what Youre planning next thanks guys.

I'll answer briefly and turn it over to Rob to answer in more detail. So.

We have locked in our debt on our existing customers has been very clear about that so it's really on a forward basis.

I will remind everybody that we do have hedges on our warehouses and so we are obviously those hedges have appreciated significantly. So we're hedged on any interest rate increase before we do the term securitization or do a commercial bank deal or whatever.

Say that we're constantly scouring the market and making sure that there's nobody willing to lend money out to firms like us.

For for less amount.

And Rob this is a very good job on that so we're very very confident that we have a full view of whatever is going on in the marketplace. We also want to make sure. We lock in terms. So we're not really interested in locking in very short term that we want to go ahead and lock that in because they are not here to trade the bond market or trying to figure out where interest rates are going to go over the next few months and years.

Don't think anybody can really figure out where they're going to go today. So when you look at that we've done I think a very good job of hedging any sort of near term weeks months risk on the interest rate side of things and so doing a deal as long as you can continue to push those unlevered returns to the question I answered before.

Should be fine and it's a spread at the end of the day the way to think about it Rob I will turn it over to you for any additional comments, yes, I would say that.

It's a good point.

John makes about looking out of the market and I think that you are implying there as well that there are all sorts of other options I think that what we have found is that the ABS market still remains very attractive.

Think that the.

The bank term market.

Does have its attractions as well, but at this point, we think that the ABS pricing is still better than what we would find.

In that market.

There is opportunities on the loan side as well and we've talked about this.

But theres going to be some math with some loans, where it does make more sense to monetize those loans upfront instead of to put those into the ABS market. So we're really are looking at all options I will say about that last sunrun deal that was I think the biggest.

<unk> asset.

Will it come out into the market that was a really big deal, but also it's not really apples to apples with the <unk>.

Loan transactions.

The lease and PPA transactions tend to price at a slightly wider spreads.

And also have longer duration.

So.

It's not necessarily apples to apples, we'd expect it to price outside of say.

Alone deal with the.

Five year duration.

But I still I thought that was a that was a good deal that they had done out there in the market.

The other thing I would say and this is really critical is that if you take a look at what we sort of go out there in the market and I think this happens a lot more on the loan side with us versus our competition is that.

We really.

We.

Really trading on our.

On a low default and delinquency rates and they're trading a lot more on their higher refinancing rates. So.

Their ability to have in house refinancing arms.

That.

Go and take the solar loan and refinance it faster than ours, I think thats something that that helps them, but won't necessarily happen in a rising interest rate environment.

For our side.

Our departments as well.

Really makes a difference and if you take a look and say what is the one thing that will take value away from an asset base.

<unk> rates and cumulative default rates.

By us being able to crush that not only does that accrete to the debtholders, but obviously it accretive long term to the equity holders as well.

So that is sort of a hidden.

Interest rates savings it really isn't made apparent right off the bat and then finally, just going back to the point that John made we've locked in these interest rates, we locked in that high yield bond last year really the point that were making was that.

Thank goodness, we did the deal when we did the deal but the market still remains very attractive today.

Alright, thanks, guys.

Yeah.

Thanks, Brian .

Our next.

Next question comes from Julien Dumoulin Smith from Bank of America Julien Your line is open.

Hey, good morning team, thanks for the time and the opportunity.

Just go back to Phil's earlier question and opened the responses there.

Can you talk a little bit about the balancing the impact of this increase and price point ultimately against.

<unk> I think you specifically alluded to <unk> and seeing that sequential quarter over quarter.

Movement of return how do you think about that through the balance of the year will look are we going to continue.

Can you to be able to see that trend as you think about your ability to continue feathering in that weighted average inventory price into your price points as you think about it.

Through the course of this year again, how much latitude is in place.

Okay.

Yeah Julian this is Jon.

You will continue to see the return move up.

As we move forward through the year obviously.

I'd like to have that sooner rather than later and again, we've already made a lot of price moves.

So I think that that would be a good assumption to make as far as looking at key price move from say roughly for NIM to 708 is not baked into any utility rate that I'm aware of at this point in time, but it will be right rough rule of thumb is you know probably better than most.

Take a natural.

Number 234, depending on.

On the utility move on top of it.

That just for the gas move if not more than that.

We've had that's not baked into these rates. So we've already seen as I laid out roughly call. It a <unk> rate increase across our base.

Every 100 bps, so I guess that is roughly about.

One and three quarter cents per kilowatt hour and so we've been able to move up accordingly, and we continue to see a lot more room to move up accordingly, and thats on top of digesting some of the increase and when you look at the the cost.

Cost increase or have not been that.

Right. When you look at the overall EPC in the resi side in the utility scale, that's not our business I can't speak to that that's obviously a bigger much much bigger impact as you know, but on the resi side of things, there's more than ample room to to increase price as utilities increased prices fairly dramatically and we have done so in.

We will continue to do so.

Got it and just to clarify around just how are you.

Thinking about your inventory position seems like Thats declining sequentially. How do you think about rebuilding what's the right level considering the backdrop and then also on the battery side.

You are positioned on that front, when we kind of assume a conversation about basic prices versus the cost impact of obviously.

Attach rate implications here as well.

Yes, we've done a very good job of.

Looking ahead.

I can't tell you that I really I think it's most unfortunate that the commerce Department is doing what it's doing and taking up the anti circumvention I think it is.

Total disaster for the country and it doesn't meet any objections whatsoever for any part of the country.

Including labor.

So.

Again, I'm not going to go down this road I think that's been well traded in the last couple of earnings calls from our peers, but what I would say is is that we.

We looked ahead, because we thought had a lot of demand was coming we were right and that's what that was because of the utility rates would move up strongly globally that did indeed happen. We know that the war is a big big part of that particularly over the last call. It 60 days or so and so.

We got some locked in some pretty nice deals on the pricing and the volume side of things and so.

We haven't really seen and we're not going to see too much inflation on the equipment side as we move forward in time, but as we maybe get into the 2023, we have more than enough ample room to be able to move that up and work with our users to do that.

If they if they need to do so so.

I just wanted to go back on the inventory line.

We have as I mentioned in answering Phil's question over $1 1 billion.

Firm contracts for equipment for batteries for Inverters for panels.

And that is not going to show up on our balance sheet.

Not going to say, who they are because there is confidentiality, but theres a lot that we are able to do out there in the marketplace.

Secure equipment for our dealers and it is for our dealers and it is an insurance policy for our dealers so to make sure that we're doing everything we can to address the risk as we see coming up and I think we've done a pretty good job of looking around the curve and seeing some things that maybe some others didn't see and making a big move to address that risk accordingly.

<unk>.

Our next question comes from Joseph Osha from.

<unk> partners Joseph Your line is open.

Okay.

Thanks, Good morning, everyone.

John I just wanted to return to this issue of cost of capital again in a slightly different way.

You have said in the past all other things being equal you would rather retain value as opposed to monitor.

Because you think that's a little more experience you can obviously have gotten more expensive use also famously said major chaos, if something's not working for or something else. So.

I'm wondering in the context.

What the market seems to be.

Thinking at the moment.

Especially with regard to the equity price could we see you shift your strategy in terms of how you pull in and monetize contracts loosening entertain them.

Yes, Joe This is John and I'll, let Rob answer the question, but yes.

That still stands we do what's right for shareholders and.

It's been accused win across the board whatever it is when we retained all the emission credits retain all of our lease PPA, we built our balance sheet and we were able to issue the industry and really first and only bond last year and that was that's a big win and that was a well timed deal as Rob mentioned earlier.

And that really enables all of that now.

Now we have a huge contracted cash flow base and regardless of what discount rate, we're not going to get into whatever discount rate you.

Want to use your colleagues and anybody else use it we give enough information out there you can be able to figure it out.

Basically.

100 basis point move you can take an ever add $250 million of NCB value to it or $2 20 a share.

And so that will help you move the discount rate we use whatever you want are pointed at rate we either.

Take portion of the cash and we ended up.

Basically spend it and invest it.

And growing the business so that we get more much more long term contracted cash flows and generate more earnings.

We give it back to shareholders.

Its not returning the investment in there like it should and we're not mean accretive on a per customer basis in CCD or on a per share basis or an earnings but cash flow.

<unk> per share is the only thing that matters as you know and then we'll give the money back to shareholders in some fashion.

With that said there are times in places.

Where it makes sense to sell some assets and Youre right Ive always said domain youre cows, and I still firmly believe that and I think youre going to see a transaction out of us sometime this year, we'll pick our time in choosing and we'll probably sell some assets they will probably be loans.

But we're open to.

So anything that makes sense for shareholders and always have been and certainly now that we have our balance sheet. We really are have a lot of optionality and we're going to take advantage of that optionality, Rob Youre getting more comments no I mean, I think there's a lot of math that goes into it but at the end of the day what.

What John says what is its going to make sure that where are we buildup asset value and cash being a part of that asset value and then what are we going to be doing thats going to flow. The most cash back to investors. It's not just about short term cash it's about cash for the long term, but sometimes made short.

Term.

Short term cash as long term cash so we're going to make sure to do what's in the best interest of the shareholders.

Excellent. Thanks, and then just one other question one of the interesting things about.

<unk> that run ABF.

FICO is down a bit obviously were.

We're all going to run out of rich people eventually I'm wondering what youre seeing in terms of the FICO profile for your assets and what you have got any philosophy, there in terms of where you're willing to go or not go.

Yes, it was down a bit but I don't think it was down that much.

I want to remind everybody.

Hi.

Yeah I.

I don't think that really makes a huge difference on payment performance from what we've seen I can't seem to pay their bills and don't have a good FICO score.

I know some and there are plenty of people that don't make a lot of money that find a way to pay their bills. Every every day. So the FICO is is your ability to pay a bill and so I just want to remind folks that for instance, we estimate about 40% of our customer base is ela non customers. So these are people that increasingly obviously given what's going on in the.

And the energy Global energy crisis, right, Joe that we have.

More and more people that really need to save money I E. They don't make a lot of money.

Turning towards this offering and I think thats one of the reasons I know it is one of the key reasons that.

Governor does Santos yesterday.

Code a rate increase and a potential elimination of competition of the monopoly so to give the people of Florida the ability to cut their bills in a time, where the rapidly escalating so.

I don't I won't I don't think that that securitization means that.

We're running out of high FICO customers or anything of that nature, there's plenty out there in fact if anything.

Again going back into these natural gas coal oil massive price increases.

And translating those into utility rate increases.

We're seeing demand spread across geographies like crazy.

And that's that's bullish as far as pulling in more and more customers that have the ability and the demonstrated they can pay their bills on time.

So I think overall the industry I can speak to it as extremely healthy from that regard.

I would also add though that we do tend to look at ways that we can we can help underserved communities.

No we do not do a whole lot of press releases and stuff like that.

On these sort of things, but there are a lot of projects we have that we're doing.

And we'll start talking about those a little bit more of that that are <unk>.

Targeting underserved communities and in trying to bring solar to places where traditionally our industry is not made.

Big headwinds, but at the same time, our FICO have actually remained very consistent on a weighted add we look at a lowering of <unk>.

It was a negative sign I would look at that as a way that we and others in the industry.

History.

Finding a way to <unk>.

Gordon the market, it's one of the things we use in our underwriting is FICO, but there are a whole lot of other things that we look at as well to try determined whether or not a customer is going to be a good customer and that really goes to that default and delinquency rates that I'm talking about the best part of the easiest part to make sure you have a customer that is.

<unk> is to make sure that that customer that you originate will be a customer that will pay you.

And that can't just be done with <unk>, there's a lot of other analysis that goes in there and.

It can.

It's a lot, but we've got a great team and we've made the right investment here and it's one that's really paying off for us.

Thank you.

Thanks, Joe.

Our next question comes from David Peters from almost any such David. Please go ahead. Your line is open.

Hey, good morning.

Just on the NIM three point out I'm curious you guys is expectation for the path forward in the proceeding.

When this might pop back up on the Cpuc's calendar assuming.

I think that would take the form of an ultimate PD call me, if I'm wrong, but.

And then just related to the comments on the Governor's veto.

The net metering bill in Florida would be great.

Yes. This is John .

I don't know and I don't think anybody knows.

Soon.

California public utility the utility Commission members know, but.

What I would say that is.

As witnessed by wood with Governor <unk> Anthos did last night.

The right thing to do is to look at how do you cost centralized or the monopoly.

Some additional revenues.

And then how do you balance that for allowing competition.

We're allowing consumer choice for consumers and what is an extremely.

Challenging time for consumers.

Cards to energy.

And I don't think that thats going to stop.

Stop anytime soon and slowdown I think it gets worse.

As we move forward in time, I think that's already baked into and goes to my prior comments.

None of the natural gas price move we've seen recently for instance is really baked into those utility rates, yet, but it's coming.

No.

I think that if the if I'm running a state governor I'm looking at this and I'm going to do what's best for the people.

Who are paying the bills. They're also called another name, especially come November the cult voters.

And.

And going against them versus trying to go and please a constituency of our monopoly utility with its union I'm, sorry, I'm not going to make that choice I'm going to choose the people.

And I'm going to choose the people that are working hard they are trying to make ends meet and I'm going to make sure that they have the ability to have competition as you and I hope. He does he has now got a really shining example.

In Florida and.

I think that.

Hopefully more and more folks on the Republican side, we'll see that solar is actually something that's competitive.

It's a market based on a government data.

Business, and we will get on board with it and.

Some of the politics that we see sometimes on the on the news channels and so forth and really move forward and do what's right for the people. So I think that will happen, but I'll tell you what I'll answer. The question you didn't you didn't ask which is a little bit dangerous always but.

California doesn't make the right decision as I made reference to earlier given these utility price increases natural gas oil coal and so forth, we'll just pick up the origination someplace else, where it makes sense, but I actually think they're going to come out with something that makes sense and we will still do business there and we sell a lot more battery service, there as well as EV charging generator.

Load management, so I think it's going to turn out well, but increasingly they need to do what's right for their state and we'll be fine on our side.

Yes.

Great No I appreciate that.

One other question I had was just in the prepared remarks, you mentioned.

The purposefully higher opex to take advantage of growth opportunities I was wondering if you could just give us a sense of where you see that trending on a per customer basis over the coming year or so.

And then specifically with respect to the growth opportunities.

Not included in <unk>.

Or the Triple double Triple plan, just when do you think you'll see those start materializing.

Yes.

I looked at that and I made that comment because if I'm looking at this looking at the.

Spending increase year over year.

It does have some street in there so it's a bit.

That's one of the big reasons, we list that in our disclosures.

I look at that as I try to put my self in the shoes of a shareholder, which obviously I am and say, okay. What's the spending increase what's the trend here and that's that goes directly to your question.

And I want to point out that on a per customer basis, we have been dropping we continue to see that drop but I'm just looking at the aggregate a nominal amount of spending and I wanted to point out that I can't say with a lot of these growth opportunities are right now we haven't disclosed those but there is there are significant and they're not baked into the triple double triple and I think that.

Once we get the hiring done.

Any sort of possible acquisition, and so forth and any sort of.

Implementation of software.

<unk> of our services.

That will make those different growth opportunities public there'll probably be probably there would be service additional services again, it could be additional acquisitions. It could be additional markets that we open up it could be additional verticals that we open up there could be additional fulfilling.

The energy International's Destiny and moving in the international market. So theres a lot of things here that we have in availability too that we're investing in right now and I just wanted to point that out, but thats directionally where the.

Spending is going and it will be spent intelligently and that spending will generate a return for shareholders or I will cut it.

Alright, thank you.

Our next question comes from Ben Castillo from but Ben Your line is open you May proceed.

Thank you.

Good morning, everyone. Thanks for taking my question.

Thanks for all the information Sean.

Rob could you talk maybe just about.

Customer visibility.

<unk>.

Where you stand versus where you.

You thought you would enter into the year.

Yes, Ben this is John .

Yes.

The seasonality I think we could have done maybe a little better job I could have on saying seasonality.

In terms of the customer additions and so forth I think we did a pretty good job on that on an adjusted EBITDA, plus P&I and cash flows and such.

But.

Wish we did exceed one point that out but.

On the customer side of things.

There are always trials and tribulations in the field as you go into Q1.

<unk> holiday hangover more vacations, and so forth winter winter weather in certain areas of the country that are more difficult than others.

And just different different issues with Q1, it's obviously, a seasonal low quarter of origination and service and even cash generation right.

So I would look back and I would say in terms of the service even noticed the service line or the other line of customers really drops from Q4 to Q1.

I wouldn't make much of that other than the fact that we're retooling some of our service only offerings you probably saw our release on some of our repair services and we're going to be doing some more selling through.

Our dealers for.

The service, but more on our direct sales desk in terms of selling service only contracts out and facilitating the selling of those services through our service technicians, which again they are doing a great job and making customers happening and happy customers are paying customers right. So it's really more about that so you should see that line move.

<unk>.

Here and there.

Next quarter or two pretty considerably.

I wish that line would have not.

Not dropped and then that would be my expect expectations are that it would have gotten a few more customers. There the change in definition and eliminating the powering customers that probably dropped the customer count by about 600 or so.

In Q1, but again I thought that was the right thing to do is that if we have some additional information that its quite possibly the same customer signing up for us with two contracts maybe once the husband one for life, which is it was the case and I personally saw one by the way in New Jersey, just last week.

Then we shouldn't count that as two customers there should be one customer so some of that.

There is an impact as well, but went ahead and did what I thought was the the honest thing to do and right thing to do and say that's one customer now the cash flow is the same to the company right and the value is and indeed the value per customer has gone up.

As they look forward.

Had a huge amount of origination in Q1 was very very pleased with it I'm very pleased with what we've seen so far in April April probably will end up being our biggest month in the company's history as far as sales.

So we're seeing a huge amount of demand.

And we've talked about raising price quite a bit right. So far in this call and so with that as I look forward.

I would say sometime in July will have all the customers that need for this entire year.

And then we'll start working on 2023.

I like where our trajectory is on the growth rate were slightly ahead of where I would expect to be on the solar and solar storage customers through our basically our dealer business, we're continuing to attract more dealers as you saw in the dealer count and overall.

We're in really good shape as far as looking forward to the end of the towards 2022 additions and then even looking ahead into 2023 I feel pretty good about that come what may out of the policy side of things I think.

No matter, what we will be able to shift and we've got such a head of steam of growth that will be fine.

In terms of 2023.

Yes.

Yes.

Adding new dealers.

Is it getting more competitive.

Sure.

How do you see that.

Maybe just one.

They are.

So the customers you are helping them and how that's changed.

Going forward.

Yes, we.

Seen continued entry of contractors from various different businesses home security.

General contracting electricians roofing, a number of industries HVAC and we don't see that trend slowing down. This is a great business to be in and so we're seeing a lot more of the dealers pop up and increasing fashion.

That don't have the level of sophistication in our back office and frankly the back office is something that is something you can scale.

And a lot of dealers a lot of contractors don't get that right and really they shouldnt have to worry about that as much. So we're trying to take on more and more of that where they want to if they don't want to want to and they want to keep doing processing permitting all that stuff design, then thats fine but were building a platform out and have built a platform that we launched.

Quote tool I think as you are aware of catalyst.

Out there that is adaptive to whatever type of dealer you are if you want to be origination only that's fine we got things set up for you. If you wanted to install only thats fine. We've got things set up for you do you want to be a smaller dealer that does both the origination install that's fine we got it for you. If you want to be as large scale multistate dealer and you want to do everything of course.

That's fine too and we're even seeing some large dealers say well I'm going to do origination install in these states, but I wanted to do origination in these other states or installation in these other states whatever it may be so there's a mix and match is my point.

We're also seeing a lot of dealer growth as the generator dealers some partnerships there.

EV charging dealers installers as well so we're seeing a lot of different folks come into the industry and they all have different needs and of course, our objective and challenge and I think we're really making huge strides I know we are on this is to build a platform software services et cetera that really.

Go to the need and cater to the needs of each individual dealer whatever they may want their business model to be.

I guess just to finish it off and thank you are you.

You're bumping up against the other.

Company's Sunpower sunrun.

<unk> out there with your dealers.

Our dealers.

To the point, where the switching between companies or how is that all working great.

Thank you very much.

Yes, I think it goes to that so I, probably could have done a better job of answering your question directly sell do it now is that we're building out. These services, we're building out the software capabilities to need all the data requirements. So that we can be more competitive not just on price and we're seeing that competitive moat. If you will widen against the competition.

I think if youre trying to do financing only of say.

Just one type of financing contract.

I think thats, a challenging really really challenging business.

And so again, we're a service provider, the financings and enabler, where not a financing company and.

It's something that increasingly consumers are understanding about the service. So we're winning over a lot more dealers do we see competition absolutely of course with him and I respect the competition some are better than others.

But we absolutely do but we're seeing a lot more influx of new dealers that will just directly sign up with us before they signed with anybody else and we're seeing more and more dealers come in and say look we can get everything from Sunoco everything and <unk> entirely focused on us versus trying to have their own.

Origination installs and so forth and and we're not going to buy.

Contractors, we don't believe in that we're not it's not something we will help facilitate investments.

Some life event wants to happen too.

Contract around our dealer owner will facilitate that we're here for them, where they are where they are friend, but we're not going to come out there and start buying competing against our dealers that's just not something.

Paul that we're the right partner, we don't need to spend shareholder cash.

In stock and dilute shareholders.

We're going to do that I don't think Thats, a good use of shareholder money and it's something that would be very taken very poorly by our current trends and dealers and so.

We're not going to do it and we don't feel like we need to do it demonstrated that.

Thank you very much.

Thanks, Nick.

Our next question comes from Kashi Harrison from Piper Sandler.

Your line is open.

Good morning. Thanks.

Thanks for taking my questions and all the details thus far.

So my first one John in your prepared remarks, I think you said origination storage attachment rates on originations have risen to 29% over the last 30 days or so can you talk about whether you are finally, starting to see improving supply from your equipment providers or as supply is still pretty tight.

Okay got you add we saw improving supply as I said in the previous earnings call in Q4 as expected. We saw we had a I think the most battery delivered to us in Q1, so last quarter.

This obviously this earnings call and we continue to see that ramp up as we move forward in time.

So I think you've heard some comments for instance, Badri right has made some comments, where he's managing the supply chain quite well kudos to him and we see others.

Being fairly nimble about that.

As well in increasing capacity. So we're cautiously optimistic we've obviously done taken a lot of aggressive action in contracting equipment, not just batteries, but modules in particular, and then inverters as well to make sure that our dealers are taking care of and again, its an insurance and a backstop, but we.

Continue to see more availability on the battery front and in a growth in manufacturing.

Production globally. So we were.

We're cautiously optimistic.

I would tell you at this point, we have caught up with our backlog and we still see we're caught up.

Up and we're in good shape and like I said, we've taken actions accordingly.

So optimistic that things are.

After the races as far as the battery supply.

That's very helpful.

And then.

I appreciate all the commentary on on.

The rising cost of capital I know I know, we spent more time talking about ABS, but I was wondering if you could maybe speak to any changes you guys might be seen in the cost of preferred equity since the fed started raising rates have you seen anything changed over there or is that still generally the same.

On a cost of capital on the sorry.

Alright.

As a preferred equity sorry about tax equity have you seen any meaningful changes on the tax equity side.

Our tax equity really remained about the same.

But from a cost of capital it didn't move down much when rates went down and it hasnt moved up really with rates moving back up so the cost of capital for tax equity is remaining fairly consistent and we think that thats really going to drive a bit more of a shift back towards.

Leases and Ppas in the market in general not just I mean.

I think that Theres, a thought around the ITC, making that pushed but I think it's much more of a cost of capital will be making that push.

Just generally speaking, which obviously favors us in the other service providers and we have seen that push back towards PPO versus loan over the last 30 days again, we're agnostic on it but.

Helpful. Thanks, very much.

Our next question comes from Mohit.

Primarily from credit Suisse.

Your line is open.

Hey, good morning, and thanks for squeezing me in here.

John could you just provide some.

More details on some awesome, Nova adaptive whom.

And how differentiated so is it fair then.

Generally trying to understand how does it differentiated versus what some of your Oems what kind of trying to offer.

Combined solution, how does that differ versus dose. Thanks.

Yes.

John .

Happy to do that so the adaptive home, which.

We've I think pushed before anybody else, but you can really see a lot of traction across the industry referenced some of the hardware manufacturers.

And indeed, some of our competitors as well and I think that tells that should tell the market that.

We're moving in the right direction right and it really fundamentally changed the industry from this idea that you are putting boxes or putting something on the roof and it's.

We just plug it in and so that can appliance and it doesn't break and don't have to worry about service and it's not really about selling power to the homeowners about selling them a box or two that's just not the case and we're moving towards where youre integrating all of these different boxes and specifically let me let me say this modules solar panels.

Energy storage systems batteries, smart Inverters EV charging load management generators.

Amongst some other.

Energy items, but those are kind of the core items that we that we're looking at and many of which we're already selling to customers, but just early days like generators EV charging load management, we haven't really gotten into that but we expect to do that next few weeks and months for instance, there is a lot of demand there from consumers so putting together again that nano greater that's.

That many utility if you will that we operate as a service provider something goes wrong, we will try to address it over the phone over the customer portal.

Sonoma portal, if we can do that we roll a truck and we're trying to bring that to.

Truck roll time down considerably from where it is we're making good progress on that and I expect to start reporting out metrics to you all about what is our response time to customers because that directly goes to.

I think more so than some other metric of customer satisfaction is you've got a problem. How fast is the service company like <unk> to solve it.

And to your satisfaction basically the power must flow right and we need to make sure. We focus on that so putting all of these different pieces together again I was in the field in New Jersey with one of our customers and our service crews really work very hard.

He was quite impressed with them and what I saw on that house was a bunch of different manufacturers. So I understand that if I was running in one of my friends, who are running the equipment companies. We all know named Enphase <unk> Tesla.

<unk> et cetera.

I would want to have every box to be my box as well, but that's just not the reality and I don't think thats going to become a reality in anytime soon so.

Tumors and dealers are out there picking what they feel is best and what they can get the best deal on and so forth working with us and as long as we've passed it and our rigorous testing.

Which we have more and more equipment coming from all four of those partners and others.

Then we will go ahead and adopt to it and make sure that all of that equipment and hardware is plugged into our software platforms. So we can serve the customer. So we're not we're not here to have an attractive like home.

Automation management and interface and Razzle dazzle in the single pane of glass and all of that we just want to make the power flow for the customer we want to solve the customers' problem and so I think more and more of the equipment manufacturers, where we're seeing we're having a meeting of the minds because it's in everybody's best interest.

To make the customer happy and.

The way to make the customer happy is to have a full understanding of what's going on tonight, regardless of who made the gear and regardless of what's going on in the home and fixed that customer's problem immediately so I think more and more the service providers are becoming more and more understood and the business model is very clear the need in the market is very clear and it's going to involve an app.

Absolutely has to involve integrating a number of manufacturers together to make sure that that customer is definitely a challenge here.

And just one last.

Housekeeping from me and I apologize if you already talked about this.

You just talk about like how many customers.

Q1 were held up in northeast.

So no direct homes and just wanted to understand the cadence of customer additions.

Through the rest of the year.

Yes, I would say that I wouldn't pick particular region regions. If you wanted more customer additions, which I did I would say it was more of in that other bucket with service only and some other services customers that we make.

Good margins on.

I would say that again.

Launching some of our repair services seeing more of that.

Being sold off the direct desk, and and and our technicians in the field. So that pivot caused us a bit of a quarter, but we have a lot of the customers that we need and in fact I referenced earlier that right now sometime in July we'll have all the customers booked.

And either booked.

Installed or in service.

And for the entire year, so that's exactly about where you want to be for Mike.

More than I guess now approaching more than 15 years in the business. So I think we're in good shape, there would always love to get the customers booked earlier, so that we can just make this very easy but.

I still feel good about where we are as far as a balancing from first half to second half, maybe some customers bleed off into the third quarter, but I.

I feel pretty good about where we are in backlog and gave you that more you guys more of that description out there as far as we just need to add another two three months and then we'll have what we need just to give you some more comfort.

Well on track to not only looking at 'twenty, two but looking at 2023 as well.

Thanks for the color and thanks for your time.

Thank you.

The next question comes from Sean Morgan from Evercore.

John Your line is open.

Thanks, guys, Hey, John Thanks for squeezing me in here.

Going back to the attach rate.

Storage.

I think like it was down maybe a little bit.

I think in the prepared remarks, you basically said that it wasn't really.

Equipment availability issue, but more of an underwriting.

Question so.

We kind of look at the customer acquisition guidance once a year, we're going to have to make some.

I guess improvements.

Sure.

On the rate of customer acquisition. So how are you going to solve for making sure that.

Underwriting because of slow down the process.

Customer acquisition, but doing it in a manner that.

So you're not going to.

Risk credit quality.

The customers that youre taking on.

Yes sure Sean.

Bit of a miss understanding there, we don't count a customer until they clear underwriting so they're signed contract but they have to go through all the underwriting and get all the identification materials that we need in their respective markets and so forth and so.

It can be very frustrating in Atlanta, It certainly was in.

March where you see the customers. This contracts are signed but they're not fully in our process, but we're not going to change that.

That wouldn't be that wouldn't be honest and so we said okay well it is what it is.

And those customers will definitely flow through and they did and Thats why you see the surge in April as.

Those customers flowed flowed through and continue to do so.

Underwriting wasn't.

We're staffing up it is obviously a huge growth rate.

Staffing in the customer service centers, we're putting more software automation and the customer service area.

We also.

We are looking at any way that we could.

For instance, a customer can directly validate without talking to somebody in the customer service center through our software platform. So we're making we've made more enhancements there to speed that up but it's just a timing issue.

And great to have a lot of news of a new home's customers are great to have a lot of northeast origination right.

We need to do more and we are making progress to get the battery attachment rate up in those markets, particularly on the Sonoma new homes, and so I think that that will be a part of the solution as we move forward in time as planned, but it's just a bit of a timing issue I just made a point that I thought that Q4 storage attachment rate and what I was seeing in February was going to.

Move up it didn't move down I was wrong. That's on me and just making the point that it was really more just a slight timing issue literally measured in a matter of days and so that's why we gave out April to say don't worry it's going to trend back up just as we told you in the last earnings call.

Yeah.

Just one more follow up on storage. So people kind of look at the U S attach rates and then kind of view, Germany as sort of a maybe a blue sky scenario north of 70% origination tax rate, so what structurally makes Germany.

So high in terms of their adoption of storage versus the U S.

But the regulators need to do or.

How do you sort of view those two markets.

Sort of converging towards what they have already achieved.

It's money its utility rates and utilities are hard at work, Jack and rates up really fast and as much as possible. So that will solve that problem and we're already seeing where people go well I got a lot of room in the rate the solar right.

Those operating versus utility rate, what about battery, what about I've got an EV.

Does that.

Factor into the mix here, so it's money solves a lot of problems right and and the utilities are working hard for us to continue to push those rates up and I don't see any stopping of that I've said this over a year ago I've never been in the power business now over a quarter of a century I guess that dates me a lot and I never over a year ago I have never seen the market more constructive for us.

Rising retail rates and boy was that right.

It happened a lot faster than I thought part of that obviously is the war but.

<unk>.

I see nothing but rate increases as far as the eye can see and big ones. So that's going to drive a lot of adoption of storage into the other services here and we've already seen that where people are up powering and looking at.

Other things such as load management, and so forth and so you are right I do agree with the thesis that you look over to Europe , you can see what what's going to happen here, obviously at a different rate in different parts of the country given the utility rates are different in different parts of the country, but I think I think Europe . So good.

If you will Canary in the coal minded about.

It's a mixed energy metaphors here, but as to what's going to happen here and I don't think its going to take a couple of years I think youre going to start to see a real significant pickup.

And this country on storage attach rates of additional services, we're already seeing it.

As we move forward into the year in utility rate increases continue.

Okay. Thanks, John .

Thanks.

Our next question comes from Paul that more kind of from Raymond James.

Your line is open.

Thanks for taking the question let me.

Go back to 80 CVD.

Is there a timetable.

You could you could suggest for how long can.

The industry.

It kind of baseline pace of installations.

Before.

Essentially running on a module.

The uncertainty continues.

<unk>. This is John I appreciate the question.

What I would say is that.

The answer here reminds me of an old adage I don't have to outrun the bear I just have to outrun you.

And.

It's a big problem, but it really is a killer for the utility scale industry and you heard that on the respective call somebody thats very.

And that part of the industry.

And you've also heard on another call.

It felt like the residential portion of the industry is fine.

There is definitely a much smaller pool of panels.

At a good price.

And those panels will flow into the residential portion of the industry.

Because we pay more we have a higher willingness to pay because we are offsetting retail rates that are rapidly rising as I've gone through and answering several of your questions. This morning.

I don't think there is a limit on that it's just massively and.

Unfortunate shall we say to the people of this country to not have the availability and the time of our global energy crisis.

Personally think gets much worse.

I don't see how it gets better anytime soon.

Where you don't have utility scale solar and you don't have a utility scale storage in and maybe some issues on the wind side of things I don't know and we're not in that business, but.

I think thats more of the issue I know it is.

And we're going to continue to navigate we've been very aggressive as I've laid out and as much details I can provide about having using our balance sheet. Our strong cash flows to go out there and procure insurance policies on equipment for our dealers, making sure. Our dealers are stocked up I want to make that point, we told our dealers months ago when they did rules.

They did so so we've got much more supply than you are seeing on our balance sheet of equipment than we have under contract directly with us for our dealers just in case and that we have.

Out there with our dealers there is a lot more supply that they've been able to go out and get themselves and we encourage and facilitated the help to do so so we've surrounded ourselves with a lot of equipment.

Sure there'll be at some point hiccups here and there, but I think we feel at this point in time.

Sure.

Point in time, the government will resolve this one.

One way or the other whatever that may be and the uncertainty will be lifted.

Look into 2023, probably the back half of this year, but if not.

<unk> be fine.

Okay.

Let me zoom in on Puerto Rico, and Hawaii as the only U S.

Power markets were.

Liam.

The key.

Feedstock.

With oil above $100 a barrel.

In those two geographies specifically are you seeing on respond.

Bye.

Humor's that are.

A lot more attuned.

Two.

The cost of fuel above and beyond what they are paying at the pump.

Yes.

A very dramatic response.

And I would also say that the reliability issues.

The islands have increased in particular.

Obviously, Puerto Rico, we saw that in the media.

Had the most unfortunate explosion at a major power plant.

As a reminder of how.

<unk>.

Fragile the centralized systems are across the country across the world and really how they don't meet the needs of consumers in an increasing fashion for reliability.

And so youre right oil markets tend to move faster than others.

But again.

And I would add Guam, Saipan, and therefore, our footprint Tinian.

And to.

So wanted to make sure they were included.

I would say that what they are is a harbinger of what's to come in the lower 48.

Natural gas prices are assumed higher as you know.

That are the most developed and we absolutely. It's just a matter of math and timing that utility rates will surge across the country and they have already started to do so so.

But we're.

That's what gives us confidence on the forward growth of the residential solar industry.

Writ large is that we're seeing these kind of massive rate increases and we do not expect them to stop anytime soon.

I appreciate the perspective, thank you very much.

Thank you.

Our next question comes from Gordon Johnson from TMT Research Gordon Your line is open.

Hey, Good morning, guys. This is James Bradesco <unk> in for Gordon Thanks for squeezing me in.

Just had a.

I don't mean to beat a dead horse on the cost of cost of debt or your prices, but just had a couple of tertiary questions. There.

In terms of in terms of the debt costs. How quickly can you pass on any incremental increase in your new debt onto customers.

Yeah.

We don't really pass on the cost of the customers what we do is.

We've talked about is increase.

Our unlevered returns so.

And as John says, we can do this on a very rapid basis. If we if we have a price increase.

That ends up going into the system going and it's just really a matter of us pushing that through.

Yes.

One thing we do is we want to make sure we're communicating to the dealers.

On a timely basis that they see the.

They see what's happening at <unk>.

It comes as a surprise to them.

But we.

We could do it in real time.

Okay.

Okay.

Okay. That's helpful.

And then.

Logan.

Noting the trajectory of <unk>.

Debt costs.

How how high would you were.

How high would you be blended cost of debt have to rise before you reassess your 4% discount rate.

Again, we're just looking at the end of the day, we're letting you guys make that decision. We've given you the 4% discount rate because that's what we've looked at our weighted average cost of debt remains below there.

So we still think that that's a good way to look at it at the end of the data as we stated in the prepared comments. It's also still a very punitive way to look at our cash flows and really at the end of the day, we're concentrated on casuals Thats why we show that Unlevered return because it's a cash on cash number. It's why we showed the spreads you can understand sort of what what we're looking at.

From a cash on cash in <unk> versus the debt number that we ended the cost of debt that we ended up paying so at the end of the day as long as that spread remains positive, which it is as long as we do a good job of continuing to build scale, which controls our costs.

As long as we continue to have this debt, which is locked in for the next four or five years all of that existing debt.

We don't really see that there is that there is necessarily an issue utility is really our best ally here because they continue to raise their rates, which gives us plenty of headroom to be able to raise our unlevered returns.

And look if new origination for whatever reason became difficult.

Difficult for the industry, we're the only ones that have a balance sheet full of contracted cash flows already there with locked in that matched up against it. So it's really not something that we look at is as anything more than a kitten would be at.

Temporary thing within.

Our business model and really that we feel we're the best positioned.

To be able to to be able to go through that but really at the end of the day, we're going to continue to manage our fully burdened unlevered returns so that regardless of what the interest rate is we're doing things that are profitable and accretive to shareholders and one thing that I would like to add is I would encourage all investors.

To look at it and say take your contracted cash flows.

We've laid out whatever discount rate you want to use that's up to you.

And what we've done is we think of that as a blowdown value.

If we couldnt find intelligent ways to invest the capital the cash flows that are coming off the base then we would we would.

Just returned that capital not spend it right and I would take a look at that across all peers and say, what's the contracted cash takeout renewal take out the option value of customers, which I think is real value take all that out and just look at and blow it down on a per customer basis on a per share basis. Because every time you issue shares for stock based.

Comp or something else there are peers.

That dilutes shareholders look at on a per customer per share basis, and you will see unequivocally, we have the best profitability and margins in the industry period full stop.

Just boil it all down blow it all down and take a look at it and Youll see that were the best.

Got it Thats helpful.

Okay, and then just finally, one more and I'll pass on.

You didn't mention that you've been raising rates.

Is it.

The global cruises just in defense of your margins or is there organic growth in there as well.

I would say it's in defense of our margins, we're seeing more organic growth on the powering and the service some of that can be gain on sale revenue. It's immaterial at this point in time, but.

We see more opportunities for that but in terms of specifically raising price. We're only doing that in response to the cost of capital and equipment price increases.

Okay.

Okay, great. Thanks, a lot guys I appreciate it.

Thank you.

Thank you.

Currently we have no further questions I will now hand back to your host John for any closing remarks, John . Please go ahead.

Thank you operator.

As we look back in the first quarter you can see that <unk> is managing supply chain very aggressively and working with our partners to solve the problems there and any allay any fears whatsoever about the equipment availability to our customers and to our dealers.

We are increasing price and have ample room to do so.

We have demonstrated our ability to move forward in time and address the rising cost of capital and lock in long term additional cash flows we are seeing and somewhat surprising but a good surprise a significant amount of interest from customers for <unk> and additional services offered and we're expanding that rapidly.

Theres so much growth ahead of us there's so much opportunity ahead of us and we're investing in that opportunity in an intelligent fashion.

This has been a great start to the year. In fact this is start to the year has been the strongest that I have seen in many years of running this business and we're looking forward to seeing you again on our second quarter call in the future calls of the year. Thank.

Thank you.

Okay.

Yeah.

Ladies and gentlemen. This concludes today's conference call. Thank you for being us being with US today have a lovely day ahead you may disconnect your lines now.

Yes.